Taxation & Estate Planning

DOMA, Same-Sex Marriage, and the Estate Tax

By Joel A. Schoenmeyer

President Obama has taken the position that a portion of the Defense of Marriage Act ("DOMA") is unconstitutional. As a result, the Justice Department will no longer defend this part of DOMA in court.

This decision has some real ramifications. For one thing, it's made the usual "defense of marriage" suspects (like Newt "I cheated on wife #1 with wife #2, and on wife #2 with wife #3" Gingrich) livid. But it also may have estate tax ramifications. Why is that?

The part of DOMA at issue (this part -- Title 1, § 7) states the following:

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ?marriage? means only a legal union between one man and one woman as husband and wife, and the word ?spouse? refers only to a person of the opposite sex who is a husband or a wife.

Now, the estate tax part: Federal estate tax law allows for a "marital deduction" for gifts made to a spouse at death, but the deduction is "equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse." And, because of DOMA, same-sex married couples were not deemed to have a surviving spouse. This created a larger burden on same-sex married couples with estates subject to tax. See, for instance, the study by The Williams Institute of UCLA School of Law that is discussed here, finding that a same-sex couple would owe $3.3 million more in estate tax than a similarly-situated opposite-sex couple.

At this point, we can't be sure how all of this will play out. But here are two issues to watch:

1. The Edith Windsor case. As this New York Times article explains:

The civil liberties union filed suit on behalf of Edith S. Windsor, whose spouse, Thea C. Spyer, died last year of aortic stenosis. The two women, New Yorkers who had been together for 44 years, married in Toronto in 2007. New York officially recognizes same-sex marriages performed in other states. Had the two been man and wife, there would have been no federal estate tax to pay [instead of a $350,000 tax bill].

The American Lawyer's website has an interview (here) with Edith Windsor's attorney about where her case goes in light of the President's new position on DOMA.

2. The Impact on Illinois. As I wrote about here, Governor Quinn signed the Illinois Religious Freedom Protection and Civil Union Act (the "Civil Unions Act") last month. However, while the Civil Unions Act states that one of its purposes is to "provide persons entering into a civil union with the obligations, responsibilities, protections, and benefits afforded or recognized by the law of Illinois to spouses," it still doesn't refer to civil unions as "marriage." And a different Illinois law (the Illinois Marriage and Dissolution of Marriage Act) actually states that only a "marriage between a man and a woman" is a valid marriage in Illinois. As a result, there's an open question regarding whether the Civil Unions Act as currently written would allow an Illinois decedent's estate to claim a marital deduction, even if DOMA becomes a thing of the past.

Full post as published by Death and Taxes Blog on February 25, 2011 (boomark / email).